Abstract
In recent times, small island countries in the Caribbean region have been fully devoted to the consolidation and development of both regional and international investments and trade corporations. Likewise, tremendous economic growth has also been witnessed in some of these trade collaborating countries. Thus, it is essential that the effect of the recent boost of economy in the region is empirically analyzed in order to ascertain if this is a product of the recent openness to trade in the region. Therefore, in this study, we applied the Autoregressive Distributed Lag (ARDL) bounds test of cointegration and the Granger causality tests in order to empirically investigate the dynamic relationship between trade openness and economic growth in the Bahamas, Barbados, Belize, Guyana, Grenada and Dominica (3B2GD) for the period from 2000 to 2019. The empirical results show that trade openness has significant effect on economic growth as there exist a long run relationship between trade openness and economic growth. Also, the results of the bounds test of cointegration confirms that in the 3B2GB economies, there is an existence of a bi-directional causality from trade openness to economic growth. Similarly, an evidence of uni-directional causality between trade openness and output growth is observed from the investigation, mostly with regards to Guyana. To further examine the long- and short-run coefficients, we analyzed the cumulative sum of recursive residuals (CUSUM) and the cumulative sum of squared residuals (CUSUMQ) plots for the respective 3B2GD economies. The results of the residual plots show that the parameters of the estimated ARDL models are stable. Keywords - Trade openness, ARDL, economic growth, cointegration, CUSUM, Granger causality. DOI: 10.7176/JESD/11-10-02 Publication date: May 31 st 2020
Highlights
According to recent studies, there have been a lot of contention on whether trade related performance has any significant influence on economic growth
Data source and variables . with respect to the existing economic growth rate as reviewed in the literature, an economic growth www.iiste.org model is estimated in line with the model that was presented in the study of Shahbaz M (2012)
By using the bounds cointegration technique which was established by Pesaran et al, (2001), we further tested the long run relationships that exists between the different variables in the study
Summary
There have been a lot of contention on whether trade related performance has any significant influence on economic growth. One of the earliest economic theory which concerns trade openness and economic growth is the Heckscher-Ohlin theory as presented by (Heckscher, 1919 & Ohlin, 1933) Their studies argued that for two or more countries to experience smooth transaction based on trade (import and export), the countries must be operating on the same frequency level with respect to constant returns to scale, technology, and a specified factor-intensity relationship between final products. The ratio of imports and exports indicators to GDP represents the coefficient of trade openness which is stated as InTOcp and is forecasted to be either positive or negative there is an existence of uncertainty observed as an effect on the trade-growth. In standardized variance of the first principal component, the discretely contributions of (E)/X, (I)/X and (E + I)/X; are 56.1, 52.1 and 53.3%, respectively
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